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Sounds like you are the vendor or contractor, as opposed to being a homeowner, so not all the links to previous questions listed below will apply, and some of them relate to a cancellation by the contractor, so applicability of the following will depend on the circumstances in your case.

Whether or not there is a signed contract, or customer accepted and signed bid or quote potentially makes a big difference too.

Note also you talk "cancellation" - they might have "cancelled the job" - i.e. not going to go ahead with it for whatever reason, but if you have a legal contract unless there are contract terms providing for "termination for convenience" or similar phrasing, or cancelling under a 3-day "grace period" per below, they cannot willfully "cancel". The contract can be "terminated" or amended/modified, but generally without good cause they cannot unilaterally void or cancel the contract and have to pay you damages for doing so.

Basically speaking, unless the contract specifically provides for liquidated damages (a predetermined amount agreed to in the contract to be paid/retained by one party if the other cancels without good cause), generally any up-front payment be would considered a deposit or advance payment on account, and has to be returned if not "earned" under the contract. Varies by state of course, and also on what the advance payment is called - deposit, down payment, advance payment, retainer, signing fee applicable to the job, etc - each has separate nuances regarding refundability.

Note unless the signed bid document/quote or the contract specifically calls for reimbursement to you for yout time and efforts in developing the bid, those expenses are considered part of your overhead and are NOT reimbursable in the event of a cancellation, any more than if you bid but did not get the job in the first place.

Note also - there are federal as well as state laws generally giving a homeowner (as opposed to a commercial customer) 3 days to cancel a home building or home improvement contract. Rules vary, but generally work done within the 3 days cannot be "cancelled" so part or one-day jobs like utility repairs and such as well as jobs started immediatelyo (commonly handyman type or 1-2 day jobs) are rarely effectively covered by these laws - but if work has not begun generally those 3 days are a "free do-over" for a homeowner and you generally have to refund any deposits. In many though not all cases, this applies to contracts signed or proposals given at or transmitted/delivered to the homeowner's residence - may or may not apply to ones signed elsewhere, but generally the federal law is pretty broad so best not to try to work around it - which also means generally best not to start work during the 3 day cancellation period. There are generally provisions exempting short-term "emergency repair" situations like electrical or plumbing repairs, etc. Generally, if they are cancelling within 3 days (which may be business or calendar days but for federal purposes includes saturdays but not sundays or federal holidays) of signing you should google the applicable laws first if you intend to try to bill for effort expensed during that time frame.

Generally, the 3 day cencellation or "cooling off period" aside, if the customer cancels AND the contractor has expended effort on the job or ordered materials for which some payment or cancellation fee has been or will have to be paid, then you are due fair compensation for those expenses. Costs which are commonly incurred early in a job and for which you may be due fair compensation may include (generally including your standard and applicable overheads and profit, minus any refunds received for returns or cancellations of orders or such):

1) labor put in planning/scheduling the job or personnel or such

2) time expended making arrangements with subs or working with subs developing their specific scope of work

3) contacting vendors or going through catalogs or such ordering materials or preparatory to same

4) advance ordering of materials, including custom or long-lead items which may or may not have advance payment or non-refundable deposit due on them

5) payments for work on plans or specs if you are having them done under you rather than directly by the client

6) costs related to filing for building or planning and zoning or environmental permits and such, and also for any work permits like right-of-way work or street closure or utility shutoff or similar fees or permits

7) costs of any pre-purchased materials or specialized equipment being bought specifically for the job - which upon cancellation (if delivery has been taken or there is a non-refundable cost) would normally be offered to the client at cost including markup plus labor cost of delivery to their location (or of rendering delivery at your business location if they come pick it up). Or if they prefer or doing that is not reasonable for any reason then the normal cost of the materials (including your standard markup) and costs directly related in returning them, minus any refunds, would be deducted from the deposit - or charged to the client if exceeding the available deposit funds

8) mobilization costs and any applicable costs of equipment rigout or modifications made for the job (rare on home size jobs) but sometimes applies to contractors like well drillers and pipe swaging or utility underground drilling equipment and such, or if special staging or scaffolding or such is needed (say curved scaffolding for a special curved building face).

9) if you required the deposit as a condition to scheduling the job into your project schedule (most common for large jobs and seasonal work), retaining some or all of the deposit for that inconveneicne is not at all uncommon of, but unless the contract spells out the method of handling of that, determining the "fair" amount is not as easy. Some schemes courts have held valid include charging for the cost (including normal overheads and commonly profit too) of the equipment and personnel for the period they are unable to work on that OR other job because of the scheduling hole - obviously, the closer to the work date the cancellation to more schedule impact it would be expected to have, and of course in some rare cases like remote sites or island or out of normal work area jobs significant mobilization costs can be legitimately charged if the prep and mob for the job was well under way or materials/crew already shipped to the job site. Generally, "lost time" charges have to be minimized as reasonable by finding other work for that time slot or moving other job schedules to fill the slot, and even if overtime was scheduled (like for seasonal work) generally unless it was guaranteed to the workers only straight time is allowed for "lost time".

10) lost profit on the job and sometimes some overhead costs which were planned on the job estimate (in addition to any actual costs incurred and not refundable) is a common court award for a client's "Termination for Convenience" - like if they changed their mind and want another contractor or the husband blew the building fund at Vegas or such, as opposed to legitimate circumstances beyond their control like unexpected major medical expense wipiong out their funds or house blew down or maybe environmental or zoning permit was denied or such, which type of event "beyond their control" might give them at least a partial "out" from the contract - though if actual work on-site has begun that sort of out is a lot more restricted. [This is one good reason a lot of contractors immediately deliver some tools or materials to the site or start some on-site prep work or tearout immediately, to get an "onsite substantial start on the job" to make it much harder for the homeowner to back out. Needs to be a substantial start to count,not just dropping off a hammer or a sack of cement, for instance] Generally, lost profit is awarded or reasonably claimable if the cancellation is for the client's convenience or whim or backing out to choose another contractor or because they had second thoughts on the bid price AFTER signing a contract or accepting the bid, not as often if they have a "good cause" to cancel, and generally not if "force majeure" like an "act of god" prevents the job from being started or done.

Of course, the amount of prep work you may have put in affects how important your retaining some or all of the deposit is, as well as the amount of the deposit of course. Also, consider the overall "fairness" of keeping the deposit versus how much effort/cost you really put into the job AFTER the go-ahead, and of course if a small amount (a couple hundred $ say) the risk of the client bad-mouthing you around town or posting bad reviews on you may well outweigh the value of the deposit.

How much the deposit amount is and how much the cancellation actually cost you and the amount of advance ordering completed also will affect whether you feel this justifies your getting an attorney on board to advise you and perhaps issue a strongly worded legal letter to the client regarding your rights to compensation for the various types of commonly acceptable charges in the event of a contract termination.

In other cases - take for instance cancellation of major industrial contracts if for instance a Russian or Venezuelan trade embargo was imposed on an oil or pipeline company's contract - the legitimate damages could be hundreds of millions of $ if the mobilization and equipment/plant procurement was well under way. Ditto to cases like the Westinghouse problems with the nuclear power plants they are building in the Southeast US, where project cancellation would be expected to result in contractor (and owner) claims in the billions of $.

Below are a couple of links to previous similar questions about deposit refunds, though generally from the homeowner standpoint, which might be of interest to you. I probably (all right, definitely) overdid on the number of links, but not knowing your specific circumstances tried to cover all bases - the other ones might be of use to you in the future or to other readers of this response: